On CNBC this week, the head of Merrill Lynch's Global Commodity & Multi-Asset Strategy Research, Francisco Blanch, said he expected the Federal Reserve in America to initiate an asset purchasing programme ("QE3") of as much as $500 billion in the second half of the year which would drive the price of gold much higher, "We think that $2,000 an ounce is sort of the right number" he said.
"We believe that ultimately the Fed will be forced to do it. If it happens in September, as our economists expect, we will get a rally sooner in gold. If it happens after the election (in November), we will get the rally a little bit later; probably then we will touch $2,000 an ounce early next year."
Whilst I am cognisant of the criticism of gold being a non-interest bearing asset, we are now in a situation where the 10-year US Treasury is yielding 1.5% which almost certainly offers investors a negative real return - the 2012 US inflation figures, from the US Beaureau of Labor (sic) Statistics, show the Consumer Price Index ("CPI") estimate averaging 2.5% ... with the lowest monthly figure being May's 1.7% FYI.
Add to the mix the fact that the world's financial press has now really started looking at the "fiscal cliff" which the US is speeding towards* and we have, in my opinion (and Merrill Lynch's!), some fairly compeling reasons to think that gold may enjoy a rally.
*The Fiscal Cliff
The popular shorthand term used to describe the conundrum that the US government looks likely to face at the end of 2012 ... lawmakers have a choice: they can either let current policy go into effect at the beginning of 2013 - which features a number of tax increases and spending cuts that are expected to weigh heavily on growth (some reckon these would reduce GDP by 4% with estimates of growth of the same forecast at 3% at the very best) and possibly drive the economy back into recession - or cancel some, or all, of the scheduled tax increases and spending cuts which would add to the national deficit and increase the odds that the United States could face a crisis similar to that which is occuring in Europe.
Sunday July 15, 2012 by